SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SECURITIES EXCHANGE ACT OF 1934
Rel. No. 40297 / August 3, 1998
Admin. Proc. File No. 3-9308
-----------------------------------------------------------------
:
In the Matter of the Application of :
:
SIDNEY C. ENG :
362 Mariposa Way :
San Anselmo, CA 94960 :
:
For Review of Action Taken by :
:
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. :
OPINION OF THE COMMISSION
REGISTERED SECURITIES ASSOCIATION -- REVIEW OF DISCIPLINARY PROCEEDINGS
Violation of Rules of Fair Practice
Insider Trading
General securities representative associated with member firm of registered
securities association purchased securities while in possession of
material, non-public information. Held, association's findings of
violation and the sanctions it imposed are sustained.
APPEARANCES:
Sidney C. Eng, pro se.
Alden S. Adkins and Carla J. Carloni, for NASD Regulation, Inc.
Appeal filed:May 8, 1997
Last brief filed: August 14, 1997
I.
Sidney C. Eng, formerly a registered general securities
representative at PaineWebber, Inc. ("PaineWebber"), a member of
the National Association of Securities Dealers, Inc. ("NASD"),
appeals from NASD disciplinary action. The NASD found that Eng
violated Article III, Sections 1 and 18 of the NASD's Rules of
Fair Practice ("NASD Rules") [/] by purchasing the stock of
Pioneer Fed BanCorp, Inc. ("Pioneer") based on material, non-
public information provided by his father-in-law, Kenneth M.
Wong, a Pioneer director. [/] The NASD censured Eng, fined him
$75,000, barred him from associating with any NASD member in any
capacity, and assessed hearing costs of $8,480 and appeal costs
of $750. We base our findings on an independent review of the
record.
II.
At issue in this matter is whether Eng, before his late 1992
purchases of Pioneer stock, was provided material, non-public
information by Pioneer director Wong regarding a proposed merger
between Pioneer and First Hawaiian, Inc. ("First Hawaiian").
Also at issue, with respect to the NASD's finding under Section
18, is whether Eng acted with scienter. The following facts are
relevant to resolution of those issues.
As of December 1992, Wong had served as a Pioneer director for
eleven years. Wong served as vice chairman of the board and as a
member of its pricing, audit, and retirement committees. Wong's
office was located across the street from Pioneer headquarters,
and he and Pioneer's president, Lily K. Yao, had been close
friends for some years before Wong's board service.
During the latter part of 1992, restrictions on interstate
banking were being eased and banking institutions like
Pioneer were prime acquisition targets. Merger negotiations
between Pioneer and First Hawaiian -- a Hawaiian bank that
Pioneer's management and Board members, according to a June 8,
1993 proxy statement, viewed as representing the "best potential
opportunity for effecting a business combination" -- began in
early December 1992. At that time, Yao arranged for
representatives of Merrill Lynch, Pierce, Fenner & Smith, Inc.
("Merrill Lynch"), Pioneer's investment bank, to approach First
Hawaiian to determine whether First Hawaiian would be interested
in acquiring Pioneer.
On December 3, 1992, executives of Pioneer and First Hawaiian met
at First Hawaiian's headquarters in Honolulu to discuss a
possible merger. Extraordinary security precautions were taken
in connection with this meeting because Pioneer and First
Hawaiian executives were greatly concerned that any leak of
information concerning the meeting would affect the price of
Pioneer stock. During the meeting, Yao told First Hawaiian
executives that she believed that another, perhaps incompatible,
financial institution would attempt a takeover of Pioneer. First
Hawaiian's president then expressed First Hawaiian's interest in
acquiring Pioneer and discussion of a range of substantive topics
followed.
During a lunch meeting on December 11, 1992, Yao told Wong that
merger negotiations with First Hawaiian had begun. Prior to the
meeting of Pioneer's Board of Directors on December 17, 1992, Yao
also informed all of the other board members of the merger
negotiations. On December 17 and 18, 1992, Merrill Lynch
presented to Pioneer's Board of Directors, including Wong, a
report detailing Pioneer's strategic alternatives and recommended
that Pioneer pursue a merger due to the "strong thrift merger and
acquisition market and the already high level of interest
indicated by some potential acquirors." At this meeting the
possibility of a Pioneer-First Hawaiian merger proposal was
specifically discussed as well as First Hawaiian's request to
negotiate with Pioneer on an exclusive basis. In connection with
this meeting, Board members were reminded of Pioneer's policy on
insider trading and Pioneer's counsel advised the Board members,
including Wong, "not to discuss the Board's decision to pursue a
sales strategy with anyone and to avoid transactions in stock of
the Company or of the potential acquiror." This advice came only
a few months after Wong's execution, in October 1992, of a
statement acknowledging his understanding of Pioneer's
confidentiality policy, which prohibited any communication of
material, non-public, and confidential information by directors.
On December 22, 1992, a second meeting of Pioneer and First
Hawaiian executives was held during which specific issues
relating to the proposed merger were discussed, including
employment agreements, stock options, accounting and due
diligence issues, and post-merger management. This meeting, like
the December 3rd meeting, also was conducted in secret. Wong did
not attend this meeting and the record does not establish when
Wong was informed about it. Negotiations between the two
entities continued through early 1993 and culminated in mid-
February 1993 in First Hawaiian's public announcement that it
would acquire Pioneer.
The record establishes that sometime between December 11 and
December 14, Wong told Eng about the negotiations between Pioneer
and First Hawaiian. At the opening of trading on December 14,
the first business day after Yao's December 11 meeting with Wong,
Eng purchased Pioneer stock. Eng subsequently made additional
Pioneer stock purchases on December 16 and 22, 1992.
The record also establishes that strong professional and personal
bonds existed between Wong and Eng, and that Wong had ample
opportunity to and did in fact "tip" Eng about the proposed
merger. Eng and Wong met in the early 1970s when they worked
together at a broker-dealer in San Francisco. In 1972, Eng
married Wong's daughter. Subsequently, the Wongs moved to
Hawaii. For many years, including during December 1992, Eng and
Wong spoke daily by telephone. During these telephone calls Eng
would convey certain interest rate information to Wong that Wong
would use in his roles as a member of the Pioneer board and of
that board's pricing committee, and as an associated person of
Shearson Asset Management. Eng also served as registered
representative for several individual retirement accounts held
jointly by Wong and Wong's spouse and for other investment
accounts, including an account for an investment club of which
Wong was a member. Wong gave Eng and Eng's spouse (Wong's
daughter) approximately $2,500 per month to help with living
expenses during 1991 and part of 1992. This assistance ended in
the Fall of 1992 when Eng accepted a position with PaineWebber
and received a $107,000 loan from PaineWebber which was
forgivable if Eng remained employed by PaineWebber for four
years.
During October and November of 1992, Eng used approximately
$55,000 of the $107,000 to pay off unpaid credit card balances
and to refinance his home mortgage loan. In addition, during
November and December of 1992 Eng used some of the proceeds to
trade in the commodity futures market. Over a two-week period in
December 1992, Eng used most of the remaining balance of the loan
to purchase 2,000 shares of Pioneer stock, using margin to the
maximum amount permissible. Prior to Eng's purchases of Pioneer
stock in December 1992 he had never purchased any Pioneer stock,
and Eng's December stock purchases were by far his largest equity
purchases in many years.
Specifically, Eng purchased 1,000 shares of Pioneer stock at
$19.50 per share on December 14, 1992. He also purchased 500
shares at $19.75 per share on December 16, 1992, and 500 shares
at $20 per share on December 22, 1992. Each of these purchases
was preceded by a series of telephone calls between Wong and Eng.
In addition, Pioneer stock purchases by Wong's close friends and
relatives -- Eng, a long-time friend of Wong's and that friend's
two sons, and a Wong neighbor -- accounted for 90% of the volume
of Pioneer stock traded on December 14, 1992 (the date of Eng's
first Pioneer stock purchase) and for all of the volume on
December 22, 1992 (the date of the second meeting between Pioneer
and First Hawaiian executives and the date of another Eng 500
share purchase). In May 1993 Eng sold the 2,000 shares of
Pioneer he had purchased in December 1992 and realized a profit
on the sale of approximately $25,000.
III.
Eng's appeal to us is premised on his claims that no direct
evidence of insider trading was adduced and that the record
evidence supporting key elements of this charge of insider
trading "[does] not rise to the level of probative circumstantial
evidence," as Eng assertedly has presented "the probabilities of
viable alternative explanations" for that evidence. Eng's claims
are unpersuasive. In this case, as in many insider trading
cases, the evidence that supports a finding of insider trading is
circumstantial, as those charged with insider trading rarely
acknowledge their misconduct. Circumstantial evidence may be the
sole basis for a finding of insider trading, [/] and, as the
Supreme Court has recognized, "[c]ircumstantial evidence is not
only sufficient, but may also be more certain, satisfying, and
persuasive than direct evidence." [/]
The evidence marshalled here is probative and compelling. As we
explain below, we conclude that the evidence establishes, as the
NASD found, that Eng, acting with scienter, purchased Pioneer
stock based on material, non-public information relating to the
merger of Pioneer and First Hawaiian, and thus violated both
Sections 1 and 18. As we also explain below, we reject Eng's
"alternative explanations" for his Pioneer trading.
A. As an initial matter, Yao told Wong about the merger
discussions on December 11, 1992. Yao stated to the NASD in
deposition testimony that before the meeting of Pioneer's Board
of Directors on December 17 and 18, 1992, Yao informed each of
Pioneer's directors of the possibility of a merger of Pioneer and
First Hawaiian. Yao further testified that she recalled briefing
Wong about the merger discussions over lunch. Yao explained that
she discerned from an entry on her calendar that the lunch took
place on December 11, 1992.
Eng urges us to disregard Yao's testimony about this lunch
meeting with Wong on the grounds that the testimony is
unreliable. Eng asserts that Yao had no independent recollection
of meeting with Wong on December 11, Yao did not produce any
documentation such as a credit card receipt to substantiate that
the lunch meeting in fact took place, and Yao's testimony was not
subject to oath under penalty of perjury. We decline to
disregard Yao's testimony, having assessed, as did the NASD, its
reliability and probative value in light of the possible bias of
the declarant, her availability to testify, the existence of any
contradictory testimony, and any corroborative evidence. [/]
The record contains nothing to suggest that Yao was biased
against either Eng or Wong. In fact, record evidence shows that
Yao and Wong are long-time friends who remained so throughout
this proceeding. With respect to Yao's availability, Yao refused
to appear before the Market Regulation Committee in response to
the NASD's request, and the NASD did not have jurisdiction over
Yao and could not compel her testimony. While the record
includes Wong's contradictory deposition testimony that he did
not attend a lunch meeting with Yao on December 11, we consider
that testimony unreliable because Wong claims to be unable to
recall anything about December 11 other than that he returned
from Guam that morning and did not meet Yao for lunch. Moreover,
while Yao had no incentive to lie, Wong, as an associated person
with an NASD member firm, had reason to fear NASD action.
Additionally, Yao's testimony regarding her meeting with Wong is
corroborated by a Pioneer letter sent to the NASD on July 12,
1993 in response to an NASD request for information. That letter
states that "Wong was orally informed by . . . Yao . . . on
December 11, 1992 . . . regarding her informal discussion with
[First Hawaiian's CEO] who had expressed interest in acquiring
[Pioneer]." The Pioneer letter further states that Wong, along
with all of the Pioneer directors, was informed before the
December 17 and 18 board meetings about the merger discussions.
Notably, Wong, who reviewed Pioneer's July 12th letter around the
time it was written, did not advise Yao or anyone else at Pioneer
that the letter -- which indicates that Wong knew about the
proposed merger before Eng's first Pioneer purchase -- was
incorrect. Moreover, when Yao, in connection with her attempt to
respond to an NASD information request, telephoned Wong sometime
prior to July 12th and told Wong that she could not recall
independently the specific date that she informed Wong about the
merger negotiations, Wong did not advise her that the date was
December 18th, the date Wong now claims to have learned of the
proposed merger.
B. We also conclude that Wong "tipped" Eng about the proposed
merger prior to December 14, 1992, and that Eng's purchases of
Pioneer stock were based on this information. As an initial
matter, the record evidence shows a longstanding pattern of
reciprocal professional assistance between Wong and Eng, and of
financial assistance given to Eng by Wong. Additionally, the
record reflects a startling pattern of trading in Pioneer stock
by Wong's friends and family while merger negotiations were
underway, from which we, like the NASD, infer that Wong was
"tipping" his friends and family members, including Eng, during
this period. [/] In drawing this inference, we reject Eng's
assertion that the evidence that transactions by persons with
long-standing relationships with Wong accounted for most of the
volume of Pioneer stock traded on December 14 and December 22
cannot be relied upon, as it is possible that one of the other
Pioneer directors could have tipped Wong's friends and neighbors
prior to their purchases. Circumstantial evidence may be
probative and reliable even when it does not negate all other
explanations for an inference; here, we conclude that this
circumstantial evidence is "certain, satisfying, and persuasive,"
[/] and that it is more probable than not that Wong was "tipping"
his circle of family and friends about the merger.
Further, Eng had never bought Pioneer stock before December 14,
1992, nor had he purchased an equity interest in any company in
many years before his Pioneer stock purchases. Eng's first
purchase of Pioneer stock occurred at the market opening on the
first business day after Wong learned from Yao that a Pioneer-
First Hawaiian merger was under discussion. This is compelling
circumstantial evidence that Eng's purchases of Pioneer stock
were made based on a "tip" from Wong. In addition, Eng used most
of the balance of the loan received from PaineWebber to purchase
Pioneer stock on margin to the maximum extent possible. This
indicates Eng's confidence in the profitability of this
investment.
Wong had many opportunities to communicate information about the
merger discussions to Eng since the two spoke daily by telephone.
However, because of the family relationship between the two men,
and the facts that the two spoke daily and a number of the
telephone calls were between the Wong and Eng residences
(suggesting that family members other than Wong and Eng may have
been parties to the calls made to or from the two residences), we
agree with the National Business Conduct Committee ("NBCC") that
the telephone records in this case are "not as compelling as they
are in other cases." Nonetheless the record establishes that
Wong spoke directly with Eng in advance of each of Eng's
purchases of Pioneer stock. We conclude that it is more probable
than not, given Wong's and Eng's pattern of professional and
personal assistance, as well as all of the other evidence
appearing on this record, that Wong "tipped" Eng before Eng's
purchases of Pioneer stock.
Eng nonetheless contends, in the face of this compelling
evidence, that he had followed Pioneer stock for over a year,
that he had recommended its purchase to his retail customers some
time before his own purchases, and that his purchases of Pioneer
stock were based on his independent assessment that the stock was
"moving up a little bit . . . [and] looked like it was
challenging the previous highs." Eng, in other words, would
explain as purely coincidental the fact that he made his first
purchase on December 14. He claims that the date of the purchase
was dictated solely by the fact that he "had money, . . . wanted
to diversify from commodities, . . . [and] the one stock [he]
knew best was Pioneer." This contention is undermined by the
timing of Eng's purchases -- while Eng had the loan proceeds in
hand for several months before his initial Pioneer purchase and
had resumed trading in the commodity futures market in November
1992, Eng's investment in Pioneer followed immediately upon Wong
learning about merger negotiations between Pioneer and First
Hawaiian.
C. The record further demonstrates that the information Wong
provided to Eng concerning the Pioneer-First Hawaiian merger
negotiations in December 1992 was non-public and material. Eng
has not disputed at any point in these proceedings the non-public
nature of the merger negotiations prior to First Hawaiian's
public announcement on February 18, 1993, of its acquisition of
Pioneer. Information which has not been made generally available
to investors is deemed to be "non-public." [/] The effort to
keep the merger negotiations from becoming public knowledge is
illustrated by the extraordinary security measures that were
taken in connection with the December 1992 meetings between
Pioneer and First Hawaiian executives.
Eng, however, has disputed strenuously the materiality of the
information. In Basic v. Levinson, [/] the Supreme Court stated
that when considering the materiality of a fact, "there must be
substantial likelihood that disclosure of the . . . fact would
have been viewed by the reasonable investor as having
significantly altered the 'total mix' of information . . .
available." [/] In Basic, which dealt specifically with the
materiality of merger negotiations, the Supreme Court established
a two-prong materiality test that considers both the indicated
probability that an event will occur and the anticipated
magnitude of the event in the light of the totality of the
company's activity. [/]
Here, by the date of Eng's first Pioneer purchase, information
about the proposed merger of Pioneer and First Hawaiian was
material. First, the merger was probable, as the highest ranking
executives of the two companies had met directly to discuss
amicably the substance of the merger and members of Pioneer's
board were being briefed on the discussions. Second, a merger of
the two companies was an event of substantial magnitude to
Pioneer. As the Supreme Court has stated, the merger of a
corporation is the most important event that can occur in the
life of the corporation; it follows that inside information
relating to a merger is material at an earlier stage than would
be the case with respect to information relating to lesser
corporate events. [/] Additionally, we agree with the NASD that
the context in which the merger discussions occurred -- an
extremely active bank merger market -- heightened the materiality
of the discussions between Pioneer and First Hawaiian such that
information about those discussions constituted information that
a reasonable investor would deem important in determining whether
to buy, sell, or hold Pioneer stock.
D. Lastly, the record establishes that Eng's conduct violated
the NASD's rule requiring the observance of high standards of
commercial honor and just and equitable principles of trade. It
further establishes that Eng acted with the required scienter for
an Article III, Section 18 finding. Eng admitted that he knew at
the time he purchased Pioneer stock that Wong was a director of
Pioneer. Eng, as a securities industry professional with over
twenty-five years of experience, at a minimum was reckless if he
did not know that, by buying the stock without disclosing the
inside information about the company that Wong had furnished him,
Eng was participating in insider Wong's breach of fiduciary duty
to Pioneer's shareholders. [/] In sum, we conclude that a
preponderance of the record evidence establishes that, as found
by the NASD, Eng bought Pioneer stock on the basis of material,
non-public information and that Eng's conduct violated Article
III, Sections 1 and 18 of the NASD Rules.
The NASD did not separately analyze Eng's conduct under the
"possession" test of insider trading liability. Under that test,
just as a corporate insider who trades in his company's stock
while in possession of inside information without disclosing that
information commits fraud whether or not he "uses" the
information, [/] an insider's "tippee" commits fraud if the "tip"
constitutes a breach of the insider's fiduciary duty and the
tippee -- with notice of this breach of duty -- trades while in
possession of the tipped information, without disclosing that
information. In these circumstances, the tippee has acquired the
insider's fiduciary duty to disclose or abstain from trad-
ing. [/] Because the NASD did not so analyze Eng's conduct, we
do not ground our findings against Eng on this alternative theory
of liability.
IV.
A. Eng filed with his brief a document titled "Declaration of
Kenneth M. Wong" dated June 21, 1997. Rule 452 of this
Commission's Rules of Practice governs the acceptance of evidence
not adduced previously. Rule 452 states that any motion for
leave to adduce additional evidence must "show with particularity
that such additional evidence is material and that there were
reasonable grounds for failure to adduce such evidence
previously." The NASD opposes our consideration of this
document. We have determined not to accept it.
The Wong declaration is duplicative of other evidence in this
record; each of Wong's assertions is repeated elsewhere,
including in a Wells-like submission Wong made to the NASD that
has been made a part of this record. Therefore, although the
document contains information important to Eng's defense, this
information is cumulative. [/]
In addition, Eng has not made a showing of reasonable grounds for
failure to adduce his father-in-law's affidavit previously. Eng
contends that the fault lies with the law firm that represented
him before the NASD. Eng, however, chose the law firm that
represented him. "Public policy considerations favor the
expeditious disposition of litigation, and a respondent cannot be
permitted to gamble on one course of action and, upon an
unfavorable decision, to try another course of action." [/]
B. Eng asserts to us, without further explanation, that the NASD
erred "by the inclusion, on the National Business Conduct
Committee panel hearing this matter, of persons who had conflicts
or the appearance of conflicts of interest with respect to their
participation." Our review of the record reveals that Eng timely
but unsuccessfully moved to disqualify from the hearing panel two
persons who, at the time of their panel service, were, like Wong,
associated with Shearson-affiliated entities. The record also
reflects that Eng sought disqualification of one of these two
NBCC panelists on the separate basis that, on two occasions, Eng
assertedly had discussed employment opportunities with him and
had declined employment offers from him. Eng claimed that
disqualification was necessary because this asserted involvement
might affect the panelist's ability to focus solely on the record
in this case.
Assuming that Eng's claim of error relates to the NASD's
determination to deny Eng's motion, we find no basis for
unfairness. Under NASD rules in effect during the NBCC review
period, an NBCC member was precluded from participation in "the
determination of any matter substantially affecting his
interest or the interest of any person in whom he is . . .
interested." [/] The NASD concluded that neither the two
panelists nor their firms had a substantial interest in the
matters at issue in this proceeding, given, among other reasons,
that Shearson-affiliated entities were not involved in the
transactions that formed the basis for the NASD complaint and
that Wong learned of the proposed merger through his service as a
Pioneer director, not as a result of his association with a
Shearson affiliate. The NASD also probed Eng's claim that he had
discussed employment opportunities with one of the panelists and,
based on the panelist's response that he did not remember even
meeting Eng and his assurance that his focus would be solely on
the record in this matter, the NASD concluded that the panelist
should not be disqualified. Under these circumstances, we find
no error in the inclusion of these persons on the NBCC hearing
panel.
V.
Eng asserts that the sanctions here are excessive, oppressive,
and unnecessarily harsh. We disagree. The bar from associating
with any NASD member in any capacity and other sanctions imposed
on Eng are a serious response to serious misconduct. Insider
trading constitutes clear defiance and betrayal of basic
responsibilities of honesty and fairness to the investing public.
A bar will serve to protect the public from Eng, and will
preserve the integrity of the securities markets. [/]
Additionally, the bar and $75,000 fine -- approximately three
times Eng's personal trading profits of $25,375 -- are
appropriate as a deterrent. We have stated previously that "for
self-regulatory exchanges to maintain their credibility as
effective participants in the regulatory process . . . [they]
must also impose sanctions severe enough to deter others from
engaging in similar misconduct." [/] While Eng suggests that he
may be unable to pay the fine, he has not introduced any evidence
to support that claim. In any event, Eng may be permitted to pay
this fine under an NASD installment plan made available to
respondents; this will reduce any financial hardship.
Lastly, the aggravating factors apparent in this record also
justify the sanctions imposed. These factors include -- as the
NBCC specified in its decision -- the reckless nature of Eng's
misconduct and his lack of candor in testifying before the NASD.
In sum, given the serious nature of Eng's misconduct, we do not
conclude that the sanctions imposed are either excessive or
oppressive.
An appropriate order will issue. [/]
By the Commission (Chairman LEVITT and Commissioners JOHNSON and
HUNT); Commissioners CAREY and UNGER not participating.
Jonathan G. Katz
Secretary
**FOOTNOTES**
[/]:/Article III, Section 1 of the NASD Rules requires that members
"observe high standards of commercial honor and just and equitable
principles of trade." Article III, Section 18 requires that "[n]o member
shall effect any transaction in, or induce the purchase or sale of, any
security by means of any manipulative, deceptive or other fraudulent device
or contrivance." Article III, Sections 1 and 18 have been renumbered,
respectively, as Conduct Rules 2110 and 2120.
[/]:/Wong, then an associated person of Shearson Asset Management, an NASD
member firm, also was named in the NASD's complaint because of his alleged
role as a "tipper." Wong settled this matter prior to hearing and was
censured, fined $45,000, and suspended from associating with any NASD
member for 22 months.
[/]:/See SEC v. Singer, 786 F. Supp. 1158 (S.D.N.Y. 1992); SEC v.
Bluestone, [1990-1991 Transfer Binder] Fed. Sec. L. Rep. (CCH) 95,880, at
99,343 (E.D. Mich. Jan. 24, 1991); SEC v. Musella, 748 F. Supp. 1028, 1038-
40 (S.D.N.Y. 1989), aff'd, 898 F.2d 138 (2d Cir. 1990), cert. denied sub
nom. DeAngelis v. SEC, 498 U.S. 816 (1990).
[/]:/Michalic v. Cleveland Tankers, Inc., 364 U.S. 325, 330 (1960); see
also SEC v. Moran, 922 F. Supp. 867 (S.D.N.Y. 1996)(proof of insider
trading can be made through an inference from circumstantial evidence).
[/]:/Kirk A. Knapp, 51 S.E.C. 115, 117 (1992).
[/]:/See, e.g., SEC v. Heider, [1990-1991 Transfer Binder] Fed. Sec. L.
Rep. (CCH) 95,651, at 98,037 (S.D.N.Y. Dec. 3, 1990) (evidence that
defendants' trading accounted for a large percentage of total trading
activity provided circumstantial evidence of scienter to commit fraud of
insider trading.)
[/]:/Michalic, supra, 364 U.S. at 330.
[/]:/See, e.g., Investors Management Co., Inc., 44 S.E.C. 633, 643 (1971).
[/]:/485 U.S. 224 (1988).
[/]:/Id. at 231-232 (quoting TSC Industries, Inc. v. Northway, Inc., 426
U.S. 438 (1976)).
[/]:/Id. at 238-239.
[/]:/Id. at 238.
[/]:/See Dirks v. SEC, 463 U.S. 646, 660 (1983) (establishing a framework
for tippee liability under Section 10(b) of and Rule 10b-5 under the
Securities Exchange Act of 1934 ("Exchange Act")). Compare SEC v. Musella,
748 F. Supp. at 1038 n.4 ("tippee who knows or is reckless in not knowing
that he was trading on misappropriated non-public information violates Rule
10b-5"); Carter v. SEC, 726 F.2d 472 (9th Cir. 1983) (registered employees
of NASD member firms assumed as a matter of law to have read and have
knowledge of NASD rules and requirements).
[/]:/The insider, by failing to disclose material non-public information in
his possession, violates his fiduciary duty to shareholders requiring him
not to disadvantage them when trading.
[/]:/See Dirks, 463 U.S. at 661-64 (1983). Compare SEC v. Adler, No. 96-
6094 (11th Cir. 1998) (discussing "use versus possession" issue in context
of insider trading claims brought under Section 10(b) of and Rule 10b-5
under the Exchange Act).
[/]:/See Vanasco v. SEC, 395 F.2d 349 (2d Cir. 1968)(additional evidence
not considered where it is cumulative and would add little to existing
record).
[/]:/David T. Fleischman, 43 S.E.C. 518 (1967).
[/]:/Article X, Section 1 of the NASD Code of Procedure (NASD Manual (CCH)
3141 (1995)). See also Article XVI, Section 4 of the NASD By-Laws (NASD
Manual (CCH) 1294 (1995)).
[/]:/See U.S. v. O'Hagan, 117 S. Ct. 2199, 2200 (1997)(the purpose of
Securities Exchange Act of 1934 prohibitions on insider trading is "to
ensure honest markets, thereby promoting investor confidence").
[/]:/Daniel Joseph Alderman, Securities Exchange Act Rel. No. 35997 (July
20, 1995), 59 SEC Docket 2528 (quoting Kenneth Sonken, 48 S.E.C. 832, 836
(1987)).
[/]:/All of the arguments advanced by the parties have been considered.
They are rejected or sustained to the extent that they are inconsistent or
in accord with the views expressed herein.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SECURITIES EXCHANGE ACT OF 1934
Rel. No.
Admin. Proc. File No. 3-9308
-----------------------------------------------------------------
:
In the Matter of the Application of :
:
SIDNEY C. ENG :
362 Mariposa Way :
San Anselmo, CA 94960 :
:
For Review of Action Taken by the :
:
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. :
:
ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY REGISTERED
SECURITIES ASSOCIATION
On the basis of the Commission's opinion issued this day, it is
ORDERED that the disciplinary action taken by the National
Association of Securities Dealers, Inc. against Sidney C. Eng and
the Association's assessment of costs, be, and they hereby are,
sustained.
By the Commission.
Jonathan G. Katz
Secretary